Thursday, February 28, 2013

With the latest postal rate increase, it is a smaller world for online book sellers and book publishers in the United States, a group that includes me. For all practical purposes, our market is now just one country. It is no longer practical to ship books to customers in other countries.

It now costs $24 to send a single book or CD from the United States to Europe. This is four times what it cost in 2000. Sending several books together is not much better. To send three average-sized books in one box costs $48 at current rates. Shipping to the two closest countries, Canada and Mexico, is only slightly less expensive. When you compare the cost of shipping to the usual idea of the value of the merchandise, it is easy to guess that people in the United States won’t be shipping many books, CDs, and DVDs to other countries anymore.

Half.com ran the numbers and decided that international shipping was no longer an option. This makes sense for its marketplace, which emphasizes used books and CDs. It is a less drastic adjustment at Amazon.com Marketplace, but it perhaps amounts to the same thing. There may not be many international book purchases with shipping charges that start at $15 and are more than the price of the book itself in most cases. At the same time, shipping allowances can still fall so far short of the actual cost of shipping that a seller of a $6 book risks taking a loss on a sale if the buyer is outside the country. Sellers can opt out of international sales, and surely most will choose to do so.

Physical media may no longer make sense in the international marketplace as the labor, energy, and security costs of shipping keep increasing. The book industry especially must make the transition to digital media. The most immediate effect, though, will be a huge loss of revenue for the already struggling US Postal Service. The USPS probably budgeted for a revenue increase from this particular rate increase, but instead, it may just be expanding the hole in its budget.

Wednesday, February 27, 2013

In a recent story, CNN worried about the sharply lower debt loads of U.S. adults under 35 years old. It is bad news for the economy, the headline said. Before people rush to dismiss this analysis, it is worth pausing to consider that the new aversion to debt is bad news for many many businesses, CNN included. CNN’s fortunes are tied to those of cable television, so CNN has reason to track household attitudes about credit card debt. Cable has become so expensive it is impossible for most households under 50 years old to buy into cable without going into debt. If there is a new aversion to debt, it translates to a new skepticism about cable for most of CNN’s potential new viewers.

All mass-media economic analysis is skewed this way. It cannot go directly against the interests of its sponsor. Fewer cable viewers is bad news, an unpleasant obstacle at the least, for CNN, so it is bad news in CNN’s headlines. But what is good and bad in the broader economy is not nearly so simple.

Most of the transparent solar cells in place now work just by being spread so thin that they ignore most of the available light. Ubiquitous Energy is taking a different tack, focusing on converting invisible light, the infrared and ultraviolet that make up more than half of solar energy on a bright sunny day, while being as transparent as possible to the visible light band that falls in between. Designs published two years ago show 2 percent efficiency and around 70 percent transparency — possibly good enough when you consider that windows have to be installed anyway. But the company is aiming for 10 percent efficiency, and at that level of electric generation, south-facing windows could generate as much as a tenth of an office building’s daytime electricity. Large south-facing office windows should ideally be only 40 to 50 percent transparent, so there may be the potential to boost solar efficiency above 10 percent by dialing back the transparency somewhat.

When transparency can be boosted to about 90 percent, solar cells can be built into video displays. That idea might seem far-fetched at this point, but Ubiquitous Energy thinks it’s achievable, and if they are right, that would be pretty cool.

Monday, February 25, 2013

With more mislabeled meat being found every day in processed food in Europe, one suggestion that has been made is for improved food labeling.

In some ways, this is obviously correct. The original complaint, after all, was that one kind of meat was being labeled as another. Looked at another way, it is hard to see how tighter food labeling rules would make a difference. Rules already require that meat be labeled accurately according to its commercial type, and it is these rules that are being flagrantly broken. More rules won’t help much if these rules too will just be ignored.

It is not so much the food that needs closer scrutiny, but the factories where it is made. The current system allows food factories to remain effectively anonymous, as food is distributed under the most famous names available, names like Nestle and, the latest on the list, Ikea. These companies, though, may have only superficial knowledge of the factories that make the food they sell. It can take a company like Ikea hours to determine which factory a bag of meatballs came from. The people who actually eat the meatballs have no idea of the factory.

The horsemeat scandal is shedding more light on this system, but even in scandal the factories often remain unnamed. It is one of the more ironic results of trademarks that the actual source of a product can remain a secret.

Friday, February 22, 2013

Banks cutting jobs and selling off assets. Austerity budgets and anti-austerity protests. Sovereign downgrades. Tinkering with monetary policy. This was just another week.

Perhaps the situation in Argentina is emblematic of the larger state of things. A corrupt government is systematically looting the nation’s wealth, while people stand around and argue over the details. Argentina is talking about invading a foreign archipelago again.Whenever Argentina goes to war it leads to financial disaster for the country, the kind of utter disaster that wipes out all of the country’s currency. It is always a long road back, almost a full generation before things are relatively tolerable again.

It is such a familiar pattern we expect it to repeat. We can almost plan on it. Yet there is no guarantee of that. One of these times, perhaps this time, Argentina may get in such a scrape that it does not come back in a generation. Argentina could almost as easily fall into such destitution that it goes on for five generations, or seven, or for so long that by the time things get better, there is no Argentina anymore.

These days, these are the chances people seem mostly willing to take.

A Michigan credit union with 158 members, Amez United Credit Union in Detroit, closed this week. The NCUA is sending checks to the members for their insured deposits.

Thursday, February 21, 2013

Heavy snows haven’t done much to help the Mississippi River or the upper Great Lakes. Snow, it turns out, is no substitute for rain. The middle Mississippi River has risen by a few inches, above the range where it might be closed to shipping, but it will need a few summer-like storms to stay open through the spring. Meanwhile, Lake Huron/Michigan has fallen below its previously recorded low, and it will need years of near-normal precipitation to avoid major shipping restrictions from low water levels. In both places, evaporation has also been a major factor in removing the water. A few cooler, cloudier summers, with less surface evaporation, would help too.

In the short run, clearing the bottoms of waterways may be the only answer. A project to remove boulders from the Mississippi River bottom in a particularly sensitive area was completed last week, and in Lake Huron/Michigan, and to a lesser extent in Lake Superior, dozens of projects are planned to dredge harbors and channels so that fully loaded cargo ships can get through.

Wednesday, February 20, 2013

In another development that bodes ill for magazines in general, Reader’s Digest is in bankruptcy again. It seems like it was just in bankruptcy, but actually, it was more than two years ago that the magazine’s new parent company was created at the end of the bankruptcy that killed off the previous parent company. Now something similar will be happening again.

Reader’s Digest isn’t necessarily emblematic of what is happening to magazines. You might recognize Reader’s Digest as the original aggregator, so it makes sense that it might have special difficulty competing with the likes of Huffington Post in the online era. But we have seen magazines in general fall off by more than half from a peak about ten years ago. Time and Newsweek are perhaps more representative of where magazines are now. Time is looking at a restructuring, but there are doubts about the financing for it. Newsweek stopping printing in December and is barely clinging to a distinct identity in its current digital form.

It is a new rule of thumb that magazines cannot compete head-to-head. These days, if there are two magazines trying to do the same thing, it is very likely that both will fail. As a guitar player, I wonder sometimes about the guitar magazines. Most of them have already been shut, but there is little integrity to hold on to in those that remain. It seems the market will still support one magazine for those who play rock guitar, and a separate magazine for those who collect guitars, but I am not sure even of that. I look at the guitar magazines and none of them seem worthwhile. They do not even live up to the needs of the fantasy worlds that they have defined for themselves to serve, so how relevant can they be in the life of a real guitarist?

The same decline in content that is eating away at newspapers and Fox News is also affecting magazines. It takes a visionary, it seems, to keep a magazine relevant — and it is the rare exception to find a magazine with a visionary in charge. But perhaps those magazines are the ones that are most likely to carry on for another ten years.

Tuesday, February 19, 2013

Two of last week’s top news stories could serve as reminders of how fragile cities are. All week long, a cruise ship limped in to shore, towed at 2 miles per hour by a cable that broke even at that speed. The ship was hobbled after an engine room fire took out its ability to move itself and most of its ability to generate power. With the electricity out, almost everything stopped. Parts of the ship became uninhabitable, and many passengers opted to go hungry rather than wait hours in line for food.

Then, on a day when astronomers were watching for an asteroid that would pass by harmlessly, if uncomfortably close, an unrelated meteor exploded over the Ural Mountains in southern Russia, with a boom so loud that building windows were shattered and one factory’s roof collapsed. At least one thousand people were injured by flying glass. Before this event, glass would not be the first danger you would think of when you imagined a meteor strike. Besides the injuries, the broken windows had life-threatening implications with temperatures falling far below freezing at night. The affected area is heavily populated and includes Chelyabinsk, a city of a million. The meteor was probably too small for astronomers to see in advance, even if they knew where to look; NASA estimated its size at 17 meters.

That makes the meteor vaguely similar in size to the “bus-sized” engine room that left the cruise ship helpless. A cruise ship is not unlike a city, and it responded the way a city might, faced with a similar disaster. Both the meteor and the engine room fire show that an unexpected event doesn’t necessarily have to be vast in scale to shut a city down.

Friday, February 15, 2013

A week later, Ireland is more confident in its refinancing deal that replaces unsustainable bank bonds with long-term sovereign bonds. It is not just politicians that are confident that the deal will pass European scrutiny. The country got a ratings upgrade this week, lowering its bond interest rate to about what it was before the banks started to go under. As big a victory this is for Ireland, people still have to be asking, “Now what?” The economic burden of Ireland’s real estate and banking collapse will now fall even more heavily on the generation born between about 1970 and 1985. Compounding the misfortune of buying houses at artificially high prices, in an era when jobs became all but impossible to get, they now will be paying taxes to cover the cost of the bank bailout for nearly the rest of their working lives. The uneven effects of the banking disaster in Ireland and the government’s bungled initial response to it are an obvious problem that will have to be solved next.

A bank failed tonight in Illinois. Covenant Bank, in Chicago, had $54 million in deposits. New Orleans-based Liberty Bank is taking over the deposits and purchasing the assets. The failed bank was founded in 2008, simply disastrous timing, by members of a megachurch. It never reported a profit.

Tuesday, February 12, 2013

Major winter storms can be bad for business. The cold weather and difficult travel don’t make people feel like working or shopping.

Last weekend’s storm left a ridiculous 20 to 40 inches of snow across New England. Where I live, on the edge of the storm in Pennsylvania, we were bracing for five inches of snow. The actual snowfall was about one inch — not much, but there were icy patches on the roads and it was enough to keep many people at home, resulting in a very slow weekend in the shops and restaurants. It is the kind of weekend that helps people adjust to the reduced take-home pay after the expiration of a temporary payroll tax cut, and that also means the spending won’t just pop up next weekend instead.

In areas with power failures, people can’t even shop online. Travel restrictions mean thousands of people have to just sit and wait somewhere for a day or longer. Many people will spend days just shoveling snow. I know because I have been through this myself three times in the last twenty years. A day when you are shoveling snow is a day when you’re not thinking about shopping. Snow shoveling might be important work, but it doesn’t show up in the economic statistics.

This storm, then, cuts into the chances that this quarter could show economic expansion nationally. With millions of austerity-budget layoffs starting to take effect next week, the chances of an aggregate economic expansion for the quarter are not looking particularly strong.

Monday, February 11, 2013

Some who hear of the raging horsemeat scandal must wonder what the fuss is all about. A huge amount, apparently millions of tons, of horsemeat have been passed off as beef in processed food sold in supermarkets in Europe and probably every continent, with the possible exception of South America. It is apparently a way for organized crime groups in several European countries to pass off their horsemeat at a higher price than what it is worth on the open market. Eating the flesh of a dead horse could properly be described as icky. But horses are fundamentally not so different from beef cattle, so why do we really care which we are eating?

The answer, from a health perspective, has to do with drugs. We may complain about how heavily cattle are drugged, but there are limits because cattle are raised, after all, for the purpose of making food for humans. That is not ordinarily the case with horses. A horse, when it falls ill, may be drugged just as heavily as a similarly ill human might be, and with an equally wide range of prescription drugs. To eat these drugs in the form of meat, with no clue about what drug you are eating and in what concentration, is not anyone’s idea of prudent behavior. Depending on the drug and other circumstances, a serving of horsemeat might contain as much as one thousandth of a dose of a drug — and that’s a horse-sized dose. It could be enough to cause medically significant effects in humans. There are restrictions on horsemeat as food for humans precisely because such effects have been noted, or at least suspected, in the past, and that was when we were using a tiny fraction of the drugs we have today.

The headlines are in Europe, but I believe that is just because it is in Europe that the laboratory tests have been done. If you have ever eaten some very strange, coarse “beef” in processed food, there is a fair chance that it was not beef at all, but horse. If American beef were ever to be sincerely tested, I suspect we would find much worse problems than horsemeat. I am not saying no one should ever eat beef, but you are surely better off if you do not it in large quantities, and certainly, no one should imagine that it is a pure, healthy food.

The best thing about the horsemeat scandal is that the world is starting to pay attention to what happens to slaughtered horses. We are discovering a host of problems that we had mostly overlooked before.

Friday, February 8, 2013

Legislatures worked late into the night this week. First it was Ireland, where it took till 3 a.m. to work out the final details of a liquidation plan for what is left of the bankrupt Anglo Irish Bank, a giant bank whose successive bailouts effectively broke the government of Ireland — and then the bank went under anyway. The Irish government rushed to finalize the plans after a Reuters story reported that the liquidation was in the works. As it turned out, the bank liquidation was necessary for the government to meet the terms of an extension on its European bailout. The European Central Bank might adjust some of the timing or other details of the liquidation, but there is no reason for anyone to imagine “Anglo” as a going concern from here forward.

Then it was an all-nighter to put together the contents of the EU’s first austerity budget. This effectively makes austerity a consensus across Europe.

RBS will pay $615 million to U.K. and U.S. authorities for its role in falsifying Libor. After that announcement, there was a consensus in London that the giant bank is not far away from full nationalization or receivership. If nationalization goes forward, there will be difficult questions about the future of RBS Citizens Bank, a U.S. subsidiary since the time of the banking crisis. The U.K. taxpayers will not want to be the sole owners of a major U.S. bank, but it is hard to imagine who they might sell it to, and spinning it off might not be an option either, as it is not certain that Citizens is strong enough at this point to stand on its own.

Similar questions might soon come up for Santander, which seemed the picture of financial health when it snapped up several banks across the Americas five years ago. Its latest report showed it staggering from the depression in Spain and just a few steps away from life support. Meanwhile, UBS turned in a particularly dismal report that shows that bigger changes will be needed there.

There was more direct talk about breaking up the banks this week. The U.K. government is working on a law that would allow regulators to seize and break up a bank as a penalty for illegal mingling of securities trading and traditional deposit-based banking. Elsewhere, there was talk about the possibility of a loose global standard on requirements to keep deposits safe from the inherent risks of securities trading, by preventing any one business from being too deeply involved in both. Such a rule would force the breakup of virtually all of the world’s giant banks, without giving them the option of fleeing across national borders.

Update: The NCUA placed NCP Community Development Federal Credit Union into conservatorship. The Norfolk-based credit union has 700 members and $2 million in assets. It will continue to operate under NCUA management.

Thursday, February 7, 2013

The improvements promised by new lighting technology are leading to improvements in incandescent and fluorescent lights, as those older technologies try to keep up as long as they can. The latest clear incandescent light bulbs cost about $2 each, which is more than you would have paid for a traditional light bulb a year ago. The price increase is well worth it, though, as the new designs are 30 to 50 percent brighter, which translates to an electricity savings of about $5 over the life of the bulb.

Meanwhile, the prices of compact fluorescent bulbs continue to fall, as improved designs require fewer materials to make. Engineers say there is room for improvement in light output there too.

It often happens that technology lives up to its potential only when a new technology threatens to overtake it. In one famous example, audio cassette technology was capable of CD-quality sound all along, but audio cassette manufacturers did not deliver that level of quality until around 1996, after the cassette had already been eclipsed by the audio CD. Improvements in incandescent light bulbs won’t ultimately prevent LED or other new technology from taking over the market, but they can slow down that transition and perhaps allow it to go more smoothly.

Wednesday, February 6, 2013

Dell is going private. Founder Michael Dell is leading a leveraged buyout with key financing provided by Microsoft. Michael will end up as the majority owner of what analysts assume will be a scaled-down computer maker. It is one of the biggest LBOs ever.

It is a desperate move, but it is probably the right move for Dell at this point. Somehow we have reached the point where public companies are at a disadvantage in access to capital when they are struggling. Dell is forced to go private to have a better chance of surviving. Other large corporations, I expect, will find themselves in the same position over the next decade.

Tuesday, February 5, 2013

Here is a nice illustration of the economic idea of diminishing marginal utility, applied to sugar, from the label of Honest Tea’s Green Dragon tea:

It is a good example because sugar is commonly overused, in part because people imagine that its effect is proportional to its amount, that is, that there is a linear relationship between the amount of sugar and the perceived sweetness. In fact, the connection is anything but linear, and you might find that you get half the sweetness in a cup of tea (or something similar) with one tenth as much sugar.

Monday, February 4, 2013

It is the last day of the penny in routine commerce in Canada. The mint already stopped minting pennies last year, and starting tomorrow, banks and stores will no longer be able to get pennies. Starting today, the government is encouraging merchants to round cash transactions to the nearest nickel. There are calls for the United States, whose currency is set up the same way, to do the same thing before too long.

Mathematically, the loss of the penny is a mess. All this new rounding is more extra work than carrying pennies around was, but that is a burden primarily for the private sector. So is the burden of keeping track of the transactional slop of cash transactions that are off by up to 2 cents. The government is saved the cost of minting pennies, though, and in a time of austerity budgets, that is the most important thing.

And besides, people really are burdened by pennies. The extra financial information they provide isn’t worth the space they take up. In a jar of coins, pennies outnumber all other coins and distract attention from the only coins that actually count for anything, the quarters. So will nickels and dimes be the next to go? The arguments against pennies also work for nickels and dimes, so my guess is that it is just a matter of time before they go too.

Friday, February 1, 2013

When is a national government legally obligated to bail out a failed business, or a bank in particular? This was, in essence, the question facing a European court on Monday. Fortunately for all of us, the court ruled that bailouts are never legally required of governments, and noted that they may in many cases be legally prohibited.

The decision is an enormous victory for the country of Iceland, which would have been in debt for a lifetime or longer under a plan put forward by the United Kingdom. The U.K. sought to hold Iceland responsible for losses that occurred when three giant banks based there collapsed. It was a subject of tense negotiation for several years between the two countries, but it was a puzzling situation, as the U.K. never really did spell out a legal basis for its demands. Early on, Iceland offered to cover the losses in question in full, but over a period of several years and without interest, and it was an offer the U.K. flatly rejected. When it got its day in court, though, there wasn’t any way to connect the dots to hold party C liable for the failings of party B. The EU had thrown its weight behind the U.K., and more than a few people in Europe claimed to be stunned by the court’s decision.

The decision is a favorable one for Europe as a whole, however, as it rules out most of the avenues by which the EU might collectively be forced to replace the capital of the banking system of one of its member states (in the next banking crisis to hit a country in Europe).

Deutsche Bank owned up to some of its financial holes in its latest report, recording €1 billion in charges to cover potential legal penalties and €2 billion for problem assets. The legal entanglements at the bank include a carbon trade mess that may not be sorted out for several more years.

Spain fell deeper into a depression with the latest economic measures. Both output and employment have declined in recent months. The government in Spain says the economy there will start to expand again this year, but the IMF is not expecting an economic expansion in Spain until next year.

Economic news was not so favorable in the United States either, as austerity budgets bit into the latest quarterly GDP enough to record a decline. The decline was mainly in federal and state government spending, with most other areas showing increases. Of course, with the federal government effectively bankrupt as it exceeds its statutory debt limit, there is a strong chance of further federal spending cuts in the current quarter.

Customer approval ratings for Bank of America were at the lowest levels ever recorded in a new survey, but all the major banks are trending down in that category. Cost-cutting has led to reduced customer service and more mistakes at the same time that banks are changing terms to make consumer accounts less attractive. Customers are not leaving in large numbers yet, but they are slowly reducing the number of accounts they hold.

Credit card checkout fees take effect soon in most U.S. states, though retailers aren’t rushing to be first with the new surcharge. The charge passes on to purchasers some or all of the credit card transaction fees that retailers pay to banks. Retailers cannot legally charge more than the actual transaction fees, though there do not appear to be effective controls in place to prevent this. The new fees are expected to annoy shoppers and will drive more consumers to pay with cash and debit cards, even at stores that don’t add on a credit-card surcharge.

The fragile transaction network is another risk to the credit card business, and we saw that again this week with a national outage lasting several hours for Visa in Canada.